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The Market
Shares on Friday closed sharply higher, with technology, telecom and media issues excited by the ability of the Nasdaq composite index to extend overnight gains at the afternoon's opening, dealers said. The FTSE 100 index closed 118.8 points higher at 6569.9, while the FTSE 250 ended 74.7 points better at 6461.1. The FTSE SmallCap ended 23.2 firmer at 3281.6, while the FTSE techMARK 100 finished 238.3 points better at 4395.16. Volume at 5.04 p.m. on Friday was 1557.7 million with 143772 trades executed.
Early support for UK equities was derived from strength on both Wall Street and Nasdaq overnight. Technology issues warmed to the latter's strength, sending 'old economy' issues lower. London's initial burst of enthusiasm ran out of steam ahead of Wall Street's opening as dealers fretted about the latest US payroll numbers. In line statistics saw the US market respond positively at the opening, but subsequent uncertainty triggered a swing of investment interest to long bonds. The DJIA subsequently recovered, however, to sport modest gains as London ended the session.
Psion held centre-stage among the FTSE 100 risers, soaring 648 pence to 4352 pence on the back of Nasdaq's ability to extend overnight gains at the afternoon's opening. Baltimore was similarly influenced by tech stocks' gain, climbing a hefty 1143 points to 8726 points. Shares in Pearson shot up 267 points to 2321 points after the group said it will slot in its Pearson TV with CLT-UFA, the TV and radio company owned by Bertelsmann AG and Groupe Bruxelles SA unit Cie Luxembourgeoise pour l'Audio-visuel et la Finance. The merged TV and production company, which is valued at Euro 20 billion, will provide a perfect platform for broadcasting Pearson TV's productions, dealers said. They added that comments by CLT-UFA chief executive Didier Bellens regarding the group's future acquisition and expansion plans are likely to underpin the media sector as a whole.
Analysts highlighted the fact that Pearson TV's content can in future be broadcast over Bertelsmann's internet channels, and that overall, the merger will result in the largest independent distribution company outside the US This is likely to generate a potential for synergies as far as advertising costs and new media applications go. Bellens emphasised that the group has "the size and financial firepower" to shape the industry and that he plans to use this strength to bolster further the new group's position. Bellens, who is also chief executive elect of the new TV and production company, said he is planning to expand the production operation through acquisitions, possibly in Europe, while TV operations will be expanded overseas.
Bertelsmann AG chief executive, Thomas Middelhoff, also stated that he would welcome a joint venture between CLT-UFA and Canal+, seeing that one operates free, and the other pay-TV. BSkyB made headway, closing 197 pence higher at 1757 pence after news that Vivendi is in talks with Rupert Murdoch's News Corporation over the media tycoon's plans to forge News Corp's digital interests into a new company. The talks are thought to involve MAP, the French group's new Internet joint venture with UK mobile phone company Vodafone AirTouch. Some close watchers reckon Murdoch may be willing to exchange a minority interest in the digital business, known as Platco, for participation in MAP and an agreement by Vivendi to include its 25 per cent stake in BSkyB.
Meanwhile, Freeserve climbed 68 pence to 491-1/2 pence amid talk that BT is interested in buying Dixons' 80.11 per cent stake. Dixons closed 26-1/2 pence better at 284-3/4 pence. 'Old economy' stocks lost ground as buyers turned their attention to tech issues, with BAe Systems 20-1/4 pence off at 358-1/4 pence, Diageo 14 pence down at 500-1/2 pence, ICI 13 pence adrift at 552 pence, and Invensys 6 pence lower at 269 pence.
Cadbury Schweppes failed to join in the market's strong market trend, sliding 12 pence to 404-1/4 pence after Morgan Stanley Dean Witter downgraded its rating on the stock to 'neutral' from 'outperform', as the 12 month valuation of 440 pence has almost been reached. The broker said the sharp reduction in the company's price target reflects the impact of higher UK rates and a reduction in its earnings forecast over the past 12 months.
Tempus Group profits estimates were upgraded by both WestLB Panmure and Albert E Sharp in the wake of Thursday's full-year results. Robust growth from existing clients, impressive net new business wins and a wider product offering, new media and branding consultancy, suggest Tempus will achieve market-leading top line growth in 2000. Combined with margin improvement, analysts forecast plus 18 per cent per annum growth to 2002. Analysts targeted a share price of 657 pence on the basis of the analyst's upgraded year to December 2000 forecast of £21 million. Albert E Sharp, meanwhile, stepped up its 2000 pretax forecast for Tempus to £20.3 million from £18.3 million, and its 2001 prediction to £23.5 million from £20.8 million.
Shares in Carlton Communications were in demand, climbing 74-1/2 pence to 754 pence on news that Morgan Stanley Dean Witter has upped its 12-month share price target to 786 pence from the previous 660 pence. The broker highlighted the growth in television advertising and its low valuation compared to its European peer group -- although the picture is not entirely positive. Morgan Stanley has, however, repeated its 'market outperform' rating on Carlton. Sentiment in Carlton and the media sector as a whole was also boosted by news of the Pearson/Bertlesmann tie-up, announced on Friday, and the continued rotation back into "new economy" issues.
Manchester United
Manchester United, the most successful football club in English soccer over the last decade, reported a 10 per cent increase in pre-tax profits to £12.2 million for the six months to January 31. Gate receipts amounted to £21.4 million, a decrease of £1.0 million on last year's figure of £22.4 million. However, the underlying performance remains strong - only 16 home games were played at Old Trafford this year compared with 20 last year reflecting the four home games played in the two domestic cup competitions last year.
Income from television continues to grow positively and rose by £6.6 million in the period to £15.6 million. The majority of this significant increase can be attributed to the revamped European Champions League with the balance due to Manchester United's participation, as reigning European Cup holders, in the UEFA Super Cup, Inter Continental Cup and World Club Championship.
Sponsorship income was broadly unchanged at £8.8 million; so too was conference and catering revenue at £3.9 million - the impact of fewer home games in the period being offset by increased usage of the stadium facilities on non-match days. Merchandising and other turnover increased by 15 per cent to £14.3 million. This represented a significant improvement in a difficult UK retail environment and reverses the decline in sales experienced in the 1999 financial year.
A number of franchise outlets were opened in the UK high street with Debenhams (13 outlets with a total of 7,000 square feet), Allsports (5 outlets with a total of 4,000 square feet) and in the travel retail arena at Gatwick Airport with WH Smith (1,000 square feet). Internationally, Manchester United opened 4 retail outlets in Ireland in conjunction with its partner, Roches Stores, giving a total of 4,300 square feet of space.
Operating expenses increased by £7.9 million in the half year. The largest component was a £3 million increase in player wage costs. This was mainly volume driven reflecting the four new players added to the squad in the summer, Bosnich (as an out of contract player), Taibi, Silvestre and Fortune (total acquisition cost of £11.3 million) partially offset by the departure of Peter Schmeichel. In addition, the football club negotiated a new contract for Roy Keane during the period although the financial impact in this financial year will only be marginal.
Manchester United's joint venture television channel, MUTV, continued to lose money although at a lower level than in the previous year. The club has now invested its capped level of £1 million in the channel with its partners putting up the majority of the risk capital. Meanwhile, the club is continuing to work at improving the content of the channel with its partners, BSkyB and Granada, whilst containing costs. All the partners are confident that if the channel can secure more recent first team highlights then subscriber numbers should grow rapidly. The club remains hopeful that such content can be made available through the current renegotiations of the FA Premier League's television contract.
The Quality Hotel adjacent to the Old Trafford stadium in which Manchester United has a 25 per cent stake continues to trade profitably with good occupancy levels. Player amortisation charges have increased by 28 per cent compared with the corresponding period last year reflecting the players acquired during the summer. Net interest income has declined significantly during the period mainly as a result of using the funds for investment in the stadium, in the new player-training centre at Carrington and player purchases.
The stadium expansion programme remains on budget and on course for completion in time for the beginning of the 2000/01 season, twelve months ahead of the original timetable. Expansion abounds in different sectors of the business. 22 outlets are planned with Allsports over the next three months. An agreement with Woolworth's will, if successfully trialled in two stores, extend the sale of Manchester United merchandise in a further 20 dedicated store areas within their shops by July this year.
In addition, the new 16,000 square feet megastore at Old Trafford will also open in July.
Manchester United is a sound company that should continue to enjoy commercial success if it can fully exploit the potential of its international following.
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